Investment character of government securities treated as capital assets, making the sale loss a capital loss

Government securities held for an enduring purpose, reflected in the balance-sheet as investments, valued at cost, and sold only infrequently were treated as capital assets rather than stock-in-trade. Occasional earlier redemptions and the company's object clause did not establish a securities trading business. Applying the real character test, the Court found that the sales were not made in the ordinary course of dealing in securities or as a normal incident of business. The resulting loss on sale was therefore a capital loss, not a revenue loss.

---

---

Issues: Whether the Government securities sold by the assessee were held as an investment or as stock-in-trade, and whether the loss on sale was a capital loss or a revenue loss.

Analysis: The assessment year and surrounding facts showed that the securities had been held for an enduring purpose, were shown in the balance-sheet as investments, were valued at cost rather than at market rates, and were sold only infrequently. The occasional redemption of securities in earlier years and the company's object clause did not by themselves establish trading in securities. The sale of securities was not shown to have been made in the ordinary course of a business of dealing in securities or as a normal step in carrying on the assessee's business. The principles governing whether a surplus or loss arises on capital or trading account required the Court to examine the real character of the transaction, and on the facts found the transaction did not amount to an adventure in the nature of trade.

Conclusion: The securities were held as investments and the loss on their sale was a capital loss, not a revenue loss.

Ratio Decidendi: Where securities are held as enduring investments and are not realised as part of the normal trading operations or ordinary course of business, the resulting loss on sale is a capital loss.

---